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2025-02-21 12:59:51 pm | Source: Axis Securities Ltd
Buy Krishna Institute of Medical Sciences Ltd For Target Rs. 710 by Axis Securities
Buy Krishna Institute of Medical Sciences Ltd For Target Rs. 710 by Axis Securities

Lower Occupancies; Higher ARPOB

Est. Vs. Actual for Q3FY25: Revenue: BEAT; EBITDA Margin: BEAT; PAT: BEAT

Changes in Estimates post Q3FY25

FY25E/FY26E: Revenue: 2.5%/1.6%; EBITDA Abs: 2.5%/1.6%; PAT: 3.8%/2.2%

Recommendation Rationale

* Operational Performance: Consolidated occupancy declined by 1,091 bps YoY and 610 bps QoQ, settling at 50.7%. However, ARPOB saw a 25.1% YoY increase and grew 0.5% sequentially to Rs 38,472 in Q3FY25. This growth was supported by new beds, an improved case mix, and revised pricing through TPA negotiations.

* Margins and Profitability: EBITDA margins remained constant at 24.2% YoY but declined 38 bps QoQ due to higher OPEX. Reported PAT rose 20.8% YoY to Rs 92 Cr, benefiting from increased operating profitability.

* Regional Performance: While the Telangana and Andhra clusters experienced a decline in occupancy, ARPOB growth remained strong, rising ~15% and ~24%, respectively. These clusters remain the largest revenue contributors, with matured assets in Telangana and Andhra Pradesh recording ARPOB of Rs 63,363 and Rs 21,175, respectively. This growth was driven by a favourable case mix and reduced ALOs

Sector Outlook: Positive

Company Outlook & Guidance: KIMS is poised for continued growth, driven by its strategic expansions, improving case mix, and increasing ARPOB. While occupancy levels have temporarily dropped, the company’s focus on high-value specialties, operational efficiencies, and geographical expansion should support long-term profitability. In the near term, the company expects Nashik Hospital to break even by Q2–Q3 FY26, while Thane and Bangalore hospitals are set to commence operations by FY25-end. The recently opened Guntur and Kollam hospitals will contribute to revenue growth, though initial ramp-up costs may weigh on margins. Looking ahead, KIMS is making a significant push into Kerala, aiming to add 2,000 beds over the next 6–8 years, capitalising on the state’s high hospitalisation rate and strong demand for premium healthcare services. Additionally, management remains cautious about sustaining its current EBITDA margins (~25%), as industry-level normalisation is expected.

Current Valuation: EV/EBITDA 23x for FY27E EBITDA 

Current TP: Rs 710/share (Earlier TP: Rs 615/share) Recommendation: BUY

Financial Performance 

KIMS delivered a strong performance in Q3FY25, driven primarily by higher ARPOB growth despite a decline in occupancy. Consolidated occupancy declined by 1,091 bps YoY and 610 bps QoQ, settling at 50.7%. However, ARPOB saw a 25.1% YoY increase and 0.5% sequentially to Rs 38,472 in Q3FY25. This growth was supported by new beds, an improved case mix, and revised pricing through TPA negotiations.

 

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